Indian (SENSEX) stocks dropped following a three-day rally that took the benchmark index to a two-year high and drove its valuation to the highest level since March.
The BSE India Sensitive Index, or Sensex, lost 0.2 percent to 19,728.76 at 11:04 a.m. in Mumbai, paring its weekly gain to 1.5 percent. Volumes on the gauge, which closed yesterday at the highest level since Jan. 6, 2011, were 3.6 percent lower than the 30-day average for this time of the day. A measure of material producers ended a five-day rally as industrial metals fell after the U.S. Federal Reserve said it will probably end its bond-purchase program sometime this year. Tata Power Co. (TPWR) slid after saying its unit stopped supply to three companies.
Sensex valuations have increased as India’s government announced policies late last year to revive economic growth and U.S. lawmakers passed a bill averting tax gains and spending cuts. Stocks retreated today even as a private survey showed India’s service industries grew at a faster pace in December.
“There was bound to be some consolidation after the recent gains,” Kaushik Dani, a fund manager at Peerless Mutual Fund, which has $874 million in assets, said by phone from Mumbai. “Indian stocks are on a firm footing and the positive trend is likely to continue as inflows remain strong.”
The Sensex climbed 26 percent last year, as government measures to bolster an economy growing at the slowest pace in three years accelerated foreign inflows. The rally has driven the Sensex’s valuation to 15.6 times estimated earnings, the highest since March, data compiled by Bloomberg show. The MSCI Emerging Markets Index trades at a multiple of 10.9.
Foreign funds bought a net $24.5 billion of equities last year, the highest among 10 Asian markets tracked by Bloomberg, excluding China. They were net buyers of stocks on all but one day last month, and purchased $256 million of shares on Jan. 2, data from the market regulator show.
The MSCI India Materials Index lost 1.1 percent to 778.73, poised for its steepest loss in two weeks. Sterlite Industries (India) Ltd. (STLT), the largest copper producer, slid 2.4 percent to 119.25 rupees, the most on the Sensex. Copper fell by the most in two weeks as industrial metals dropped after the Fed policy makers said they will probably end their $85 billion monthly bond-purchase program this year.
Jindal Steel & Power Ltd. dropped 2.1 percent to 456.40 rupees and aluminum maker Hindalco Industries Ltd. (HNDL) lost 1.9 percent to 131.90 rupees.
Tata Power retreated 1.2 percent to 108.85 rupees, heading for its lowest close in a week. Its unit Coastal Gujarat Power stopped supply to three state-run distribution companies in the Rajasthan state, which defaulted on payment of dues, according to an e-mailed statement. HDFC Bank Ltd. (HDFCB), the second-largest private lender, fell 1.1 percent to 675.60 rupees, on course for the lowest close since Nov. 26
The S&P CNX Nifty Index (NIFTY) on the National Stock Exchange of India declined 0.2 percent to 5,996.25. The BSE Mid-Cap Index (BSEMDCAP) added 0.2 percent in a sixth day of gains, holding at a two-year high. India VIX, which measures the cost of protection against losses in the Nifty, increased 0.5 percent to 13.54.
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